Paramount, more than any other media company, faces big financial questions and lots of pressure going into 2024.
That’s according to Naveen Sarma, managing director and sector lead for the U.S. media and telecom sectors for S&P, who spoke at the UBS investor conference on Tuesday, according to Deadline. Sarma laid out the case for why Paramount’s smaller size puts it at a disadvantage vs. larger media businesses such as Disney or Warner Bros. Discovery.
Sarma spent the session justifying his firm’s case for downgrading Paramount’s credit rating, noting that its cash flows were significantly hurt by a poor transition from traditional cable TV to streaming. Its rating dropped from BBB to BBB- earlier this year, moving towards the bottom of investment grade.
He noted that its weaker credit rating could impair its access to “commercial paper,” which are smaller, shorter-term loans at more reasonable interest rates used to help finance projects. That’s a problem with Paramount still spending big on content like its upcoming second season of Halo and its Star Trek franchises. It’s also set to owe $2 billion to the NFL for media rights in 2024.
In a follow-up comment, Sarma said this in an emailed statement: “Paramount had $1.8 billion of cash as of September 30, 2023 which increases to over $3 billion, pro forma for the sale of Simon & Schuster in the fourth quarter. In addition, the company has access to ample borrowing capacity through its revolving credit facility and commercial paper program to fund any potential shortfalls.”
Sarma’s comments are just the latest indication of the challenges facing Paramount, which actually launched its streaming service, originally called CBS All Access, years before some of the heavy hitters. But the service hasn’t made as much of a dent in the years since, and wasn’t part of Nielsen’s list of top streamers for November. Its free, ad-supported service, Pluto TV, has consistently outpaced Paramount+ over the last few months.
This comes as its streaming business continues to lose money, with Paramount posting a $238 million operating loss in the third quarter, narrower than its year-earlier loss of $343 million. CEO Bob Bakish said the company expects to return to total earnings growth in 2024, but didn’t say when its streaming business would turn a profit.
Sarma said that while he sees how Disney and Warner Bros. Discovery could grow its earnings before interest, taxes, depreciation, and amortization, it “isn’t clear cut with Paramount.”
The analyst noted a lot of the issue comes from Paramount’s smaller presence. “The rest of their business is facing a lot more pressures because of the size and scale of that business relative to their peers,” Sarma said, as reported by Deadline.
A spokesperson for Paramount wasn’t immediately available for comment.
Image Credit: Paramount